Cytokinetics, Incorporated — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012. Filed August 6, 2012. Cytokinetics is a clinical-stage biopharmaceutical company developing muscle-function therapies; it had no commercial drug sales.
Financial performance and position
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Total revenue | $1.84 million | $1.05 million | $3.66 million | $1.82 million |
| Research and development expense | $8.24 million | $10.51 million | $16.99 million | $19.69 million |
| General and administrative expense | $2.57 million | $4.19 million | $5.62 million | $7.52 million |
| Net loss | $8.94 million | $13.63 million | $18.87 million | $25.34 million |
| Net loss per share, basic and diluted | $0.13 | $0.23 | $0.26 | $0.41 |
| Operating cash used | $17.44 million | $25.39 million |
Revenue growth reflected greater Amgen reimbursements and new reimbursements from Global Blood Therapeutics (GBT), partly offset by lower NINDS grant revenue. The company remained loss-making; operating margins are not especially informative given its development-stage model and absence of product sales.
At June 30, cash and cash equivalents were $63.65 million and short-term investments were $26.82 million, totaling approximately $90.5 million, versus $49.0 million at December 31, 2011. Current assets were $92.96 million and current liabilities $3.99 million. Total liabilities were $4.10 million; remaining equipment-financing debt was repaid in March 2012. Operating leases represented $20.65 million of future minimum commitments.
Cash increased by $44.82 million in the first half: operations used $17.44 million, investing provided $3.54 million, and financing provided $58.71 million. Management said existing cash, equivalents and investments should fund projected requirements for at least 12 months, while anticipating continuing losses and cash outflows.
Material changes and financing
- Compared with the first half of 2011, revenue roughly doubled and net loss narrowed by $6.47 million, principally as operating expenses fell. R&D decreased $2.71 million and G&A decreased $1.90 million.
- June public offerings raised approximately $60 million gross and $56 million net after about $4 million of issuance costs. The securities included 55.9 million common shares, 23,026 Series B preferred shares convertible into 23.0 million common shares, and warrants for 47.4 million common shares at $0.88 per share.
- The offerings materially increased common shares outstanding, from 74.9 million at year-end 2011 to 133.5 million at June 30, 2012. Warrants and convertible preferred stock create further potential dilution. A $1.3 million non-cash deemed dividend arose from the Series B preferred stock’s beneficial conversion feature.
- The company also received $2.8 million net from its at-the-market share sales in the first half. As of August 3, $18.3 million remained available under its shelf registration statements.
Outlook, programs and risks
- 2012 guidance: revenue of $5–7 million; R&D expense of $42–46 million; and G&A expense of $12–14 million. Each expense estimate includes approximately $2 million of non-cash stock compensation and depreciation. R&D spending was expected to increase in the second half versus the comparable 2011 period.
- Omecamtiv mecarbil is being developed by Amgen for heart failure. The second cohort of the ATOMIC-AHF Phase IIb trial opened in May; a decision on progression to the third cohort was anticipated in Q4 2012. The companies were preparing for a potential Phase II trial of oral formulations.
- Tirasemtiv is being developed for skeletal muscle weakness conditions, including ALS. The company submitted a proposed Phase IIb ALS protocol to the FDA, targeting approximately 400 patients over three months; the filing describes encouraging trends in earlier Phase II studies, not established efficacy. Tirasemtiv also had FDA fast-track and FDA/European orphan-drug designations.
- The company expected myasthenia gravis trial data in the second half of 2012 and anticipated filing an IND or foreign equivalent for CK-2127107 by year-end 2012. Smooth-muscle inhibitor work remained preclinical.
- Key risks include clinical-trial failure, delays, adverse effects, regulatory uncertainty, dependence on partners and contract manufacturers, and the need for additional capital. Amgen controls omecamtiv mecarbil development outside Japan and may delay or discontinue it. Cytokinetics has never generated drug-sales revenue and may need further financing, which could dilute shareholders or require program cuts.
- NASDAQ notified the company in June that its share price had remained below the $1.00 minimum bid for 30 consecutive trading days. It had until December 17, 2012 to meet the stated compliance test or face potential delisting. The IRS was examining tax year 2009; management said it maintained reserves for uncertain tax positions. No legal proceedings or subsequent events were reported.
Important facts for investors to verify
- Whether the stated 12-month cash runway remains consistent with actual operating burn and the 2012 spending outlook.
- Clinical-trial progress, safety and efficacy data, and regulatory decisions for tirasemtiv and omecamtiv mecarbil; also verify the CK-2127107 IND timeline.
- Amgen’s continued development plans and the timing and terms of any collaboration payments or milestones.
- Potential dilution from outstanding preferred shares, warrants, options and further equity issuance, alongside the effect of the June financing.
- Whether the company regained NASDAQ bid-price compliance by the deadline and the outcome of the IRS examination and Section 382 ownership-change review.